Extending Tax Cuts – Two Approaches

In the past week, both House Republicans and Senate Democrats have introduced bills to extend the Bush-era tax cuts, most of which have either already expired or will expire at the end of this year.

The Republicans are moving to extend the cuts for all taxpayers, while the Democrats are pushing to extend them for only those earning $250,000 or less.  Each plan faces almost certain refusal by the other side of the aisle, which leaves taxpayers in the same position they were – with expiring tax cuts and no good prospect for renewal.

We’ll keep you informed of all the latest as things develop.

Year-End Tax Planning for Business

As year end approaches, we’re doing more and more tax planning for our clients. We’re often asked what they can do within their business to reduce the tax burden for this year. Below are a few points to consider as we enter the final months of the year.

  • If you’re an accrual basis taxpayer (we can tell you if you don’t know), most employee bonuses based on 2011, but paid in the first two and a half months of 2012, can be deducted in 2011. They will be picked up by the employee when paid 2012.
  • In addition, if you’re an accrual basis taxpayer, be sure that any customer deposits or down payments for products or services delivered after 12/31/11 are not included in income.
  • Seek to maximize depreciation deductions by puchasing necessary equipment in 2011, as many of the accelerated depreciation allowances are set to expire at the end of this year unless Congress renews them.

We have many more great ideas for tax savings, which can be a great gift to yourself as we approach the holiday season.

Keeping a Mileage Log – Really?

For many business owners, the last thing they want to do is log each and every mile they drive for business. They believe logs are clumsy, time intensive, and easy to forget. The IRS, though, takes a very different stance.

In case after case fought in US Tax Court, the taxpayer has lost their mileage deductions because they can’t produce evidence of the business use of the vehicle. The IRS has also come out strong with this in audits as well, expecting to see a mileage log when examining a business.

There are several different ways to approach a mileage log, that will help if you’re ever asked the question.

  • Keep a log of all the business miles you drive, including the business purpose for the trip
  • Keep a log like the above, but just for 3-4 months out of the year, if your mileage tends to be pretty similar from month to month. Then, use these few months to determine the entire year.
  • Look into Apps for Blackberry, iPhone, and Android smartphones that use the phone’s internal GPS to track your mileage, and allow reports to be edited and printed online.

No matter what method you choose, always record the total mileage on the car at the beginning and end of the year.

Using Corporate Funds Correctly

Businesses that chose to organize as a corporation do so for many reasons. Chief among these is to protect the owners and their assets from liability arising from the actions of the business or its employees. This is accomplished because a corporation is an “artificial person” in the eyes of the law – a legally separate entity from its owners.


Some owners, however, have trouble keeping personal expenses out of the corporate checking account. These personal expenses are non-deductible, and in many cases are classified as loans from the corporation to the owners, or as repayments of prior loans made to the corporation by the owners. A recent court case highlights the danger of this practice.


A couple took nearly $740,000 out of corporations they owned, and classified them as discussed above. The IRS determined, and the US Tax Court agreed, that they were, in fact, dividends to the owners, and were fully taxable to the owners on their individual tax returns.


How do you help prevent this type of problem from occurring in your business? Below is a list of the factors the tax court considered in its decision – use these as a guide.


  • Document the intention to make a loan, and the intention to pay it back
  • Treat the loan like a loan- record the loan advances, calculate interest at a reasonable rate, have a repayment schedule.
  • Create a promissory note for all loans
  • Note that the loan advances and repayments are just that
  • Be sure the amount of money borrowed and loaned is not excessive given the financial position of the owners and the business.